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U.S. Economic Situation Discussed; America's Large Prison System Examined; Gun Purchases Increase in Response to Possible Gun Restrictions

Aired August 17, 2013 - 14:00   ET


CHRISTINE ROMANS, CNN ANCHOR: The American dream, happiness and prosperity. A house, a great job, maybe a couple of kids, and time to enjoy it all. The great recession is behind us, but the recovery isn't so great.

I'm Christine Romans and this is YOUR MONEY.

First, housing. Goldman Sachs says all cash deals are half the market right now. Wealthy investors, buyers from China, Canada, South America, pumping up recent housing data. Average Americans may be getting priced out. In the second quarter, when you look at this, more than two-thirds of all the homes sold in the U.S. were affordable For families making $54,000 a year, that's the median U.S. income. But you can see how that affordability is falling.

Next, the labor market. Nearly 5 million net new jobs have been created since the end of the recession four years ago, but look at the jobs that were lost. Mostly middle wage jobs right here, and the jobs we're creating, mostly lower wage positions.

And finally, cute but costly -- children. For a middle-income family it costs $241,000 to raise a child. That's from birth to age 18. Since 1950 that cost has surged 23 percent adjusted for inflation and includes things like housing, food, health care, as well as toys and computers. Those of you in the northeast are probably going to pay even more of that and out west, more than that average. America's rural areas getting a little bit more of a break.

Mark Morial is the president of the National Urban League, Mohamed El Arian is the CEO of Pimco Company who manages nearly $2 trillion in assets. Marc, what's the biggest thing holding Americans back from this recovery today?

MARC MORIAL, MAYOR OF NEW ORLEANS, 1994-2002: Good jobs that pay good wages, number one, and number two, the ability of people to restore their damaged credit, therefore they can borrow again for a home. And I think thirdly, the idea that a young person who even earns a college degree is having a tough time finding a job in their chosen field of study. The American dream has been wounded, and we've got to rebuild it.

ROMANS: You know, Mohamed El Arian, you know markets and you know the economy, and I was watching retail earnings this week showing from store to store that a paycheck to paycheck customer is under stress right now. Wal-Mart calling the environment challenging, sales at Macy's declined for the first time in four years. Interestingly enough, Bloomingdale's, also owned by Macy's, did fine. Costco had to really cut their prices to keep their sales up. Why aren't working Americans enjoying the low interest rates more?

MOHAMED EL-ARIAN, CEO, PIMCO: We're living, Christine, in a two speed economy. On the one hand there is a group of many people who are worried about their jobs if they have jobs. They're not well-paid jobs, they can't own their home, and, in addition, they don't feel like they have adequate provision and access of public services, education and health. And that is particularly true for the long-term unemployed, for the younger unemployed, and it's particularly true for those below the poverty line.

On the other hand, we have a group of people that are better off. They have done extremely well. Why? Because they have access to financial assets. And financial assets have been bolstered in an attempt to improve economy policy. The problem is that this is not trickling down, so you're not getting inclusive growth, you're not getting enough job creation, and it is not an engineering problem. That's what's most frustrating, Christine, it's not an engineering problem. It's a political problem that has to do with incredible polarization in Washington.

ROMANS: So it's a Washington problem. Do you think the economy would be doing better if Washington had its act together a little bit more? Part-time jobs, low-wage jobs, temporary service sector jobs, one economist described this to me as a bartender economy. Is that what a recovery is supposed to look like? And can we keep a middle class strong and America the driver for the world if these are the kinds of jobs we're creating?

EL-ARIAN: No, that's not how the recovery should look like, and we are capable of so much more. And it's not just about the here and now, it's also about the fact that most Americans feel for the first time that their kids' generation will be worse off than theirs.

So two things that need to happen. One is at the macro level, Washington needs to act on the three problems we have -- insufficient demand, insufficient structural reforms, and we have to remove some debt issues. Then at the micro level, we have to empower and enable incredible talent, and this is about retooling and retraining.

ROMANS: Marc, I know you want to jump in there. Last word for you.

MORIAL: I think that one of the things is that this is a long-term trend. The loss of good-paying jobs was accelerated by the recession, but it began a long time ago with our trade and fiscal policies, which infected the transfer of good paying jobs abroad. The bills have now come in, the picture is not good. The nation needs and economic plan which restores manufacturing and puts a premium on good jobs.

If the Congress wanted to do something in the short run, raise the minimum wage. Make a down payment on the idea that people who work need to earn a decent and living wage. So there are political issues, but I think we need the public and private sectors to come together on a long-term economic plan for the country. We have to do it because what we see now is that the recovery is less than even and it's leaving many, many people behind, and these are warning signs for the future of this nation.

ROMANS: I think we'll be hearing more about quality and quantity in the jobs market and what that's going to mean for working Americans, paycheck-to-paycheck Americans and building the American middle class. Thank you very much, both of you. Talk to you again soon.

MORIAL: Thank you, Christine, thanks Mohamed.

ROMANS: Coming up, the U.S. makes up five percent of the world's population but 25 percent of its prison population. What that means for our economy and your money, next.


ROMANS: Crime pays, at least if you're in the prison business. The number of people locked up in the U.S. has quadrupled since 1980. The number of privately owned prisons has skyrocketed as well. Critics point to a large number of low level drug offenders presently incarcerated. Attorney General Eric Holder says he will ask prosecutors to tweak the indictments and charges that carry harsh mandatory minimum sentences, arguing this country's massage prison system, the largest in the world, may be doing more harm than good.


ERIC HOLDER, U.S. ATTORNEY GENERAL: Today a vicious cycle of poverty, criminality, and incarceration traps too many Americans and weakens too many communities. In many aspect of our criminal justice system exacerbate these problems rather than alleviate them.


ROMANS: Studies that show black males are targeted for arrest more often and have received sentenced nearly 20 percent longer than those imposed on white males convicted of similar crimes. Support for change now comes from places you might least expect.


NEWT GINGRICH, (R) FORMER PRESIDENTIAL CANDIDATE: I think you almost have to be blind to America and not realize that we still have very, very deep elements that go all the way back to slavery and segregation and they go all the way back to fundamental differences in neighborhoods and in cultures. And I think it would be very healthy for the country and for the Congress to reevaluate both the criminal justice part of through court, but also to reevaluate the whole way we've dealt with prison and the way in which we've basically created graduate schools for criminality and locking people up in ways that are increasing their inability to function in society.


ROMANS: Graduate schools for criminality, a recent National Bureau of Economic Research study found that juvenile incarceration leads to lower high school graduation rates and higher chances of adult incarceration down the road. Ashleigh Banfield is the anchor of CNN's "LEGAL VIEW," Anthony Papa is the author of "15 to Life," how I painted my way to freedom, now the media manager for the Drug Policy Alliance, a group that advocates for the decriminalization of drugs.

Anthony, you lived this story. You had no record, no violence. You were paid $500 to deliver four-and-a-half ounces of cocaine. It's a crime, you don't deny that. But did you have an idea that you would spend more than a decade in prison for that crime?

ANTHONY PAPA, MEDIA MANAGER, DRUG POLICY ALLIANCE: No, I didn't. It was an awakening. I walked into a living nightmare, made a first-time, non-violent drug sale. A bowling buddy asked if I wanted to make a fast $500 delivering an envelope to Mt. Vernon from the Bronx. At first I said no. But I got desperate and when you get desperate you do stupid things. I delivered the envelope and walked into a police sting operation. And 20 cops came out of nowhere. They arrested me. I did everything wrong and I was sentenced to 15 years to life under the Rockefeller drug laws, which mandates mandatory minimum sentencing laws.

ROMANS: And that's exactly basically what Eric Holder is looking at right now and talking about right now. Actually if you're Eric Holder, you're looking at $80 billion spent on prisons a year. Take, for example, Tennessee. The costs to taxpayers for a year of youth incarceration there, $88,000. The cost of a year public school, $10,000. Last year there were more people incarcerated in this country than received bachelor's degrees. Ashleigh, did you see any dissenters to Eric Holder's proposals?

ASHLEIGH BANFIELD, CNN ANCHOR: You would have expected a cacophony, but there wasn't necessarily a cacophony to what's inside the policy, it's just how the policy can change. Eric Holder effectively said to his prosecutors stop writing in the amounts that people are getting charged with because that way we can skirt the mandatory minimums. But he didn't go to the legislative process to say let's rewrite these policies.

This is really a bipartisan thing, Christine. Everybody knows we are in crisis. We're bursting at the seams with our prisons. And precisely with what Anthony was dealing with. There are a lot of Anthonys who are sitting in prison right now. Lest anyone, Christine Romans, should think there are dangerous drug offenders who will be released out in the streets to attack our children, that's not what the policy is about, either.

You can't be violent, you can't have used a weapon, you can't have assaulted children, and you can't have connections to drug cartels or gangs or the mafia or that sort of thing. So being specific, you would not apply in this case. You would be one of the people spared one of those very long sentences.

ROMANS: Let's talk, Anthony, about what Newt Gingrich said in that clip we just played, that prisons are graduation for criminals, they increase the inability of someone to function in society. Give us a view from the inside out. How do prisons need to change so they do more rehabilitation and less punishment, especially for what you're talking about, nonviolent drug offenders who still have committed a crime, will have to face punishment, but what do you do over those years you're in prison?

PAPA: To be sentenced to 15 years to life is unbelievable. When I went to prison I was lucky. I acquired three college degrees while I was in prison. I have a master's degree from a theological seminary. So education to me was a way to transcend the negativity of imprisonment. So I would say education is one way to do it.

And have prisons, instead of pure punishment, make them rehabilitative centers where people can find their real selves, because prison is the most e existential environment there is. What I mean by that is there's something mystical about spending 15 years in a six-by-nine cage. You discover who you are. So if you have these rehabilitative programs available, you can take advantage of it.

ROMANS: I think that's an eloquent way of putting it. I would not think about it as a six-by-nine cell. The war on drugs has been about punishing and deterring. Have we failed? Have we succeeded?

BANFIELD: I think we failed in a lot of places. You, I think, are an exception to the rule, Anthony. I don't think a lot of people get a degree. I don't think they get a master's degree, that's for sure. I think they come out with alarming recidivism rates in this country.

So you can watch these programs on television that show the gang- related activity, the segregation that exists in these societies, because they are their own societies, and they are not rehabilitation for the most part. Yes, there are exceptions to the rule, but for a lot of people it's hard to get that passed in congress. Let's spend more money on the people in prison.

ROMANS: Your first job is the job that is going to propel you for the rest of your life, for your economic life, for your family. I cover family economics. That first step going into prison, especially for young people, you have just derailed it and it is so, so deadly. Anthony Poppa, it's so nice to see you, Ashleigh, talk to you very soon.

It's been just over eight months since the tragedy in Newtown, Connecticut. Today gun permits are soaring in the very town where 20 children and six teachers were gunned down. What's going on in the wake of the massacre? You're watching "YOUR MONEY."


ROMANS: Late last year the massacre at Sandy Hook Elementary in Newtown, Connecticut, shocked America and sparked a new debate about gun rights. But there's been a reaction in Newtown, in Newtown, you might not expect. Poppy Harlow joins us to explain. Poppy?

POPPY HARLOW, CNN MONEY CORRESPONDENT: Hey, Christine. This was pretty surprising to me, but what we've seen in the months following the massacre at Sandy Hook Elementary School, the number of pistol permits issued in Newtown has actually risen significantly. And if you look at Connecticut as a whole, the number of background checks for people who want to buy guns rose 53 percent from the six months before the shooting to the six months after.




ELIS: How you doing?

HARLOW: She's a grandmother who is about to become a first-time gun owner.

ELIS: This way is easier.

HARLOW: Nancy Elis says the new gun laws passed in Connecticut, among the toughest in the country, are a big reason why she's buying her first firearm.

ELIS: Our rights are being slowly infringed upon, and that this whole idea of controlling guns has come to my back door. In other words, there could be a time when I may never be able to get a firearm.

HARLOW: Elis lived in Newtown for 28 years. Her desire to own a gun is part of a spike in the state. Newtown, vividly remembered for one of the worst gun massacres in U.S. history, is on track this year to double the amount of pistol permits it issued last year.

DAVID ACKERT, FOUNDER, NEWTOWN ACTION ALLIANCE: I'm concerned that it can get out of hand. Nancy Lanza had quite an arsenal, I understand, in her home. You only have two hands. How many guns can you fire at once?

HARLOW: Dave Ackert and Monte Frank are members of Newtown Action Alliance, pushing to curb gun violence.

MONTE FRANK, NEWTOWN ACTION ALLIANCE: There is a perception that the government will come and grab all their guns, where it's going to not allow them to purchase certain guns.

HARLOW: This Newtown resident Ryan Delp owns multiple guns but did not want to show them on camera out of respect for the Newtown victims.

You went out and bought another gun after the shooting at Sandy Hook Elementary. Why?

RYAN DELP, NEWTOWN RESIDENT AND GUN OWNER: That was 100 percent driven by the government that was trying to be passed. It's my job to take care of and protect my family.

HARLOW: It's hard for Jill Russo to understand, as she grieves the loss of his daughter Lauren, killed at Sandy Hook.

GILLES ROUSSEAU, DAUGHTER KILLED IN NEWTOWN SHOOTING: It hurts in a different way. I had my first dream, my daughter was in the dream just about a week ago. And I said, Lauren is dead. How can she be there? She's dead. L

HARLOW: What do you think when you see these numbers?

ROUSSEAU: It's sad. It's really sad. There are no other words to say. It makes me sad to think that people -- they feel that they're protecting themselves, but they're just adding to the problem.

HARLOW: There was also a surge in gun sales in Colorado following the Aurora movie theater massacre. And after the 2011 mass shooting in Tucson, background checks for gun purchases in Arizona spiked. While Nancy Elis grieves for the victims of the tragedy in her own backyard --

ELIS: My heart breaks for them. It truly does.

HARLOW: -- for her, this is about protecting her rights.

ELIS: Did the guns cause the tragedy? No. It is the person behind the gun that caused the tragedy.


HARLOW: And here's something I think is really important to point out, Christine. When you look at the number of guns, the number of Americans that own guns in this country has been declining steadily, really, since the '70s. But what we're seeing is more guns in the hands of fewer people.

And that's a key point that two of those men in the piece talked to me about that are part of Newtown Action Alliance. That's what really concerns them. They're not anti-gun per se. They're concerned about seeing more and more guns, what they see as sort of a stockpiling of guns in the hands of fewer people, and as you saw, they mentioned Nancy Lanza in that home with multiple guns.

ROMANS: That's an interesting story. Thank you, Poppy.

HARLOW: You're welcome.

ROMANS: Up next, a major airline merger rejected, now a legal battle brewing. Is the price for your next flight about to soar?


ROMANS: You're grounded. That's the message from Justice Department to American Airlines and U.S. Airways. The proposed merger of those two airlines would create the world's biggest airline. But the government says it's a bad deal for consumers.

Now, airlines have been merging since the late 1970s. In 1978 there were 20 major airlines in the U.S. By 1990 there were just 12. And today there are just seven. The U.S. has seen, three, huge mergers in the last five years. Those were necessary to keep airlines in the sky. You couldn't make money doing it alone. But the Justice Department says that's not the case here, and if this merger goes through, those four airlines will control more than 80 percent of the U.S. travel market.

This is the chart the airline industry wants you to see. It's the cost of flying. The cost of flying has actually dropped over those 30 years, although prices have ticked up a little bit in the last decade. But here's a chart they don't want you to see. In 2010, JetBlue and American Airlines made a deal which gave JetBlue slots at Washington's Reagan National Airport. Before JetBlue landed at Reagan, U.S. Airways charged more than $1,200 for a last minute roundtrip ticket to Boston. After JetBlue arrived U.S. Airways dropped the price to less than $500.

But if American Airlines and U.S. Airways merge the new airline could end the agreement with JetBlue and the airline companies' own executives says that reduced competition has allowed them to raise fares and charge you more for things like checking your bag or changing your ticket. At an industry conference, the U.S. Airways president said, quote, "Consolidation has also allowed the industry to do things like ancillary revenues. This is a structural permanent change to the industry and one that's impossible to overstate the benefit from." When I hear the words "ancillary revenues," I think about paying for snacks and headphones on domestic flights.

Move stories that matter to your money, give me 60 seconds no the clock, money time.


ROMANS: Move over, America, China needs more fuel. China set to become the biggest importer of oil later this year as the U.S. produces more of its own.

Europe's long recession is officially over. The economy grew by 0.34 percent in the second quarter. That's the first growth since 2011.

Paula Deen might be winning in court, but she's not winning her empire back. After admitting in court to using a racial slur, Deen lost her contract with the Food Network, big name sponsors, and her cookbook publisher.

Only 74 percent of American women are in the workforce. That's barely budged in the last 25 years and trails behind other developed countries.

Will you still like the way you looked without George Zimmer? Men's Warehouse released its first commercial without the "I Guarantee It" guy. The company dropped Zimmer this summer in a very public feud.

Another ad from J.C. Penney has moms up in arms. Parents say it promotes bullying because it features a kid eating alone thanks to the clothes he's wearing.


ROMANS: That's it for YOUR MONEY. We're here Saturdays at 9:30 a.m. and 2:00 p.m. eastern and we're back on Sundays at 3:00. Have a great day.